Export meat markets show response, as rain impact starts to take effect

Jon Condon, 19/10/2017

RAIN has had a sudden impact on the delicate buyer/seller relationship in Australia’s export beef markets this week.

As news has filtered out in customer countries about the widespread beneficial falls across large parts of eastern Australia over the past fortnight, the phones on processors’ meat sales trading desks have started to ring.

There’s now widespread expectation that Australian beef kills for the remainder of 2017 will be further curtailed, as producers who have received rain hold-back cattle to add weight. And processors themselves are contributing to that prospect, by showing no real signs of lifting rates on already unprofitable slaughter cattle, despite the looming supply difficulty (see Tuesday’s weekly kill report).

While hardly an avalanche, the trend towards greater meat buyer interest has been distinct, trade participants told Beef Central yesterday.

“Friday was deathly quiet; Monday we got one or two unexpected calls; a few more on Tuesday; and by Wednesday, it was clearly evident,” one export trade desk contact said.

“They’re picking up the signal that production in Australia will be well down for the next couple of weeks as a direct consequence of the rain, and likely for the rest of the year as producers with the prospect of some green feed in front of them hold on to stock.”

“We haven’t written a lot of business out of the situation yet, but the phones are starting to ring,” one processor trader said.

“It’s no secret that exporters have been bleeding to death, in the face of strong export competition from the US and Brazil, but this break in Australian production we’re now seeing is giving us some opportunity to re-set prices a little higher,” he said. “Some might call it jaw-boning,” he said.

Some impact showing up already on prices

With overseas buyers becoming aware that livestock supply in Australia is likely to be further restricted for the remainder of the year, it’s also starting to be seen in price.

One trade source yesterday quoted Japanese grassfed fullsets (12 or 14 cuts) up from A810c/kg to 840c/kg in a matter of days. Fullsets are only reasonably thinly traded these days compared with years ago, but they provide an indication of a broader trend. Even with a 30c/kg lift in value, processing those cattle in Australia was still a considerable loss-making proposition, however, the contact suggested.

“It’s a slow burn, because many customers already have cold stores full of reasonably-priced meat, but it is starting to turn.”

Meat price rises this week are certainly not universal, but on some cuts have been substantial enough.

Grassfed knuckles, for example, were quoted by another trader yesterday from 630-640c/kg (A$, FOB) three weeks ago to a touch over 700c/kg in business written yesterday – an 11pc rise. Those deals were done mostly into North Asia and domestic markets.

“It’s a slow burn, because many of those customers already have cold stores full of reasonably-priced meat, but it is starting to turn. Every day this week, there’s been requests for offers,” he said.

In contrast, some items like trim into the US market, actually went down in value yesterday, judging by yellow sheet figures, so the trend is far from universal.

“The rain may be instant, but meat market changes can take weeks to happen after it has fallen,” one exporter said. “Over the next couple of weeks, as trade participants better understand just how significant this weather event is likely to be on production performance, we think it will get a little busier.”

In the absence of any eastern states weekly kill figures being generated again this week, stakeholders are speculating about the size and trend in recent processing activity. But it’s not hard to build a case that slaughter numbers in Queensland, and to a lesser extent NSW, are well down this week.

Feedback from individual processors suggests widespread days lost in Queensland plants, and more planned for next week. At least one Central Queensland plant plans to close for the entire week from Monday.

It means that on a reasonably wide range of items, some large export processors will physically run out of stock in the next few weeks, and potentially for quite some time. As an illustration, a processor selling forward 4-6 weeks, basing his sums on production of 100 tonnes of meat a day, suddenly doubles his position 8-12 weeks, if production drops to 50t/day, as it has this week.

“These are big hits to the system that we did not forecast,” one exporter said.

Manufacturing, budget meat worst affected

Another outcome will be that the mix of beef in the market will change, he said.

“Cow slaughter will basically stop, so budget meat, manufacturing meat and leaner trim will dry up, very quickly. Grainfed beef will be largely unaffected, because grainfeds have to be slaughtered, ocne they have done their time. That means the proportion of grainfed in the overall (albeit reduced) Australian beef production will be larger.”

Another widely held view is that the domestic market will be the first to see any wholesale price rises.

“Domestic is always the first to feel the ups and downs, because all they’ve got in terms of supply is Aussie production,” one trader said.

Domestic beef demand, had been ‘pretty good’ over the past couple of months, and large stocks of product that had built-up in cold storage earlier had now basically cleared, one domestic contact said.

“Domestic traders are saying Aussies have got the taste for beef again,” he said. “There was a lot of meat thrown at the domestic trade earlier, because of how tough the export markets got. But while it got full, the market is going into barbecue season, and it does not take long to clear the stocks when processors pull-up, the way they have this week.”

All traders spoken to stressed, however, that this week’s encouraging preliminary price rises for some meat descriptions did not mean processors were trading in the black again.

“There’s still a lot of red ink being written, even with some improved meat prices,” one contact said. “Nobody is about to go out and bid-up to try to secure more cattle, when losses are as high as they still are.”

Australian exporters continue to face headwinds, with Japan being absolutely belted with price-competitive US beef, and Korea this week facing higher tariffs for Australian beef (see earlier report).

Also taking a little of the joy out of this week’s developments for processors has been the rise in the A$ value, which has risen closer to US80c again during the past week.



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